Housing Starts

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts.

Data on housing starts and permits for construction were released this morning by the U.S. Census. Starts rose 2.3% from last month based on an improvement on the single-family side, while multi-family starts slipped. Strong existing home sales have pulled down inventories and staunched the flow of delinquent properties into inventory. The result has been lower inventories and stronger pricing, both signs needed for builders to move forward on single-family production.

Permits for construction inched up only slightly, though, again driven by the single-family sector while permits for multi-family construction fell by 3.0%. Regardless, permits for building both single-family and multi-family are significantly higher than in August of 2011, by 19.3% and 39.2%, respectively.

Construction contributes to economic growth as well as job creation. It is also a reflection of strength in the housing market as builders cannot get financing for a project in a market where supplies are too high, nor would they front their own money for such a project. The economic growth and job creation in turn help with consumer confidence and abet a virtuous economic cycle. While construction is up, it remains at low levels. In the near term declining inventories and restrained construction will help buoy prices and confidence, but a strong improvement in household formation and employment growth could result in housing shortages in the long-term.

Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.